Jan
03
2025
What Is the Average Stock Market Return?
Wondering how much you’ll gain by investing in stocks? It helps to look at the average stock market return for the last 10, 20, and 30 years.
Read more
SoFi
Student Loan Consolidation and Refinancing
Jan
03
2025
Tax Credits vs Tax Deductions: What’s the Difference?
Tax credits and tax deductions work differently, with deductions lowering your taxable income and credits actually reducing the taxes you owe.
To be a little more specific, deductions can decrease the amount of income you have to pay taxes on, which can lower your final bill. Tax credits are a dollar-for-dollar reduction in what you owe — and might even get you a bigger tax refund.
It’s possible you may be able to claim both deductions and credits. Read on to understand more about how both options work.
Key Points
• Taxes fund government activities and are mandatory for individuals and corporations.
• Income tax rates increase with higher earnings, but deductions and credits may be possible to reduce how much you owe.
• Tax deductions lower the amount of income on which you are taxed.
• Tax credits directly reduce the tax that you owe the government.
• Property tax, sales tax, and capital gains tax are among the other taxes you may owe.
What Are Tax Credits?
Tax credits represent a dollar-for-dollar reduction in your overall tax burden. They directly lower the tax amount you owe to Uncle Sam.
For example, if you owe $1,500 in taxes but qualify for a $500 tax credit, your total tax bill will decrease by $500, meaning you’ll only have to pay $1,000. That can leave more money in your bank account.
How Do Tax Credits Work?
When filing your taxes, you can use IRS resources, tax software, or a certified accountant to research tax credits for which you may be eligible. If it’s your first time filing taxes, these resources can be especially helpful.
Even if you don’t owe anything in taxes, it’s worth looking into tax credits. Why? Because some tax credits are refundable, meaning the government might owe you money:
• Refundable tax credits allow your tax liability to go below zero. For example, if you owe $100 in taxes but receive a $500 refundable tax credit, the government will actually owe you $400.
• Nonrefundable tax credits do not work that way, unfortunately. If you qualify for a nonrefundable tax credit, the best it can do is eliminate your tax liability (meaning you owe nothing). But even if the credit is large enough to wipe out what you owe and there’s still money left over, you don’t get to stash that money in, say, your savings account.
Tax credits are not for everyone. Each credit has specific requirements to qualify.
And if you’re wondering what happens if you miss the tax deadline, tax credits would still apply for the year that you’re filing your taxes.
Common Tax Credits
Your tax software or accountant should know the full list of tax credits to look out for, and the IRS website features the whole list. (You can also learn important information from an online tax help center.)
Before diving into your taxes, however, it’s a good idea to note some of the most common tax credits for which you may qualify:
• Earned Income Tax Credit: Commonly called by its initials (EITC), this refundable tax credit is for low- to moderate-income workers. The amount you might qualify for and your eligibility can vary depending on whether you have dependents and/or have a disability.
• American Opportunity Tax Credit: This education tax credit is partially refundable. Students (or parents claiming a student as a dependent) can claim this tax credit for the first four years of higher education. It’s $2,500 per eligible student, but once your tax bill hits zero, you can earn 40% of whatever remains (up to $1,000) as a tax refund.
• Child Tax Credit: Even if a child isn’t enrolled in higher education, parents have access to a handy tax credit. The Child Tax Credit is a refundable tax credit for parents (with dependent children) who meet income requirements.
• Child and Dependent Care Credit: Parents have access to yet another potential tax credit, this time for those who pay for babysitters or daycare. The credit amount depends on such factors as your income, child care costs, and number of children requiring care.
You can use tools on the IRS website to discover if you qualify for these and other tax credits.
What Are Tax Deductions?
Tax deductions are another way to reduce your tax burden, but they work differently. While a tax credit discounts your final tax bill after all the calculations, a tax deduction reduces the amount of income eligible for taxes.
The more deductions you have, the less money you have to pay taxes on. This can result in a lower overall tax bill, but it cannot result in a tax refund.
Recommended: What Triggers an IRS Audit?
How Do Tax Deductions Work?
Here’s an example to understand how tax deductions reduce what you owe:
If you made $110,000 in a given year, you would owe 24% in federal taxes based on your marginal tax bracket. But if you have $20,000 in tax deductions, you would lower your taxable income to $90,000, which puts you at both a lower base to calculate taxes ($90K vs. $100K), and you would be in the 22% tax bracket, which is capped at $100,525 for single filers.
As you can see, when calculating how much a tax deduction will save you, it’s important to know which tax bracket you’re in — your tax bracket represents the percentage at which your income could be taxed. In general, the more money you make, the higher the tax rate.
Common Tax Deductions
Nearly every tax filer is eligible for the standard deduction. Without inputting any information accounting for business expenses, medical costs, charitable contributions, student loan interest payments, and other eligible deductions, you can simply subtract the standard deduction amount from your taxable income.
For the 2024 tax year (which will be filed in April of 2025), the standard deduction is:
• 14,600 for single taxpayers (and married, filing separately)
• $29,200 for married taxpayers filing jointly
• $21,900 for heads of household.
Many people choose to take the standard deduction, but if you qualify for various deductions that would amount to more than the standard deduction, it’s worth itemizing your deductions.
Working with a personal accountant or tax preparation software may be your best bet for determining which deductions you qualify for. Here are some of the most common types of deductions:
• State and local taxes
• Business expenses (if you are self-employed)
• Mortgage interest
• Property taxes
• Qualifying medical expenses
• Charitable contributions
• Student loan interest.
You can explore even more tax deductions on the IRS website.
If you run your own business, it’s wise to look into common tax deductions for freelancers.
Pros and Cons of Tax Credits
Tax credits are largely a good thing, as they reduce your overall tax burden. But they also have some drawbacks. Here’s a closer look at the pros and cons:
Pros
First, consider these upsides of tax credits:
• Reduces your tax bill, which could leave more money in your checking account
• May result in a refund
• Often designed for moderate- to low-income families.
Cons
Next, the potential downsides of tax credits:
• Strict eligibility requirements
• Can delay your refund when you claim them.
Recommended: How to File for a Tax Extension
Pros and Cons of Tax Deductions
Similarly, tax deductions serve a useful purpose in filing taxes, but they also have their own set of pros and cons.
Pros
Here are the potential advantages of tax deductions:
• Reduces your tax bill
• The standard deduction is easy to claim
• Useful for self-employed individuals with business expenses.
Cons
Also be aware of the possible downsides:
• Lots of paperwork (itemized deductions)
• Weighing the standard vs. itemized deduction can be complicated
• Won’t generate a refund.
Tax Credits vs Deductions: What’s the Difference?
Let’s break down the differences between tax credits and tax deductions in chart form:
| Tax Credits | Tax Deductions |
|---|---|
| Dollar-for-dollar reduction in your total tax bill | Reduction in how much income you have to pay taxes on |
| Can result in a tax refund | Can only reduce taxable income; cannot result in tax refund |
| Must claim specific credits for which you qualify | Can take the standard deduction or itemize your deductions |
| Only available to filers who meet specific criteria | Available to most filers as standard deduction |
While nearly everyone can qualify for the standard deduction, tax credits can actually be the more effective way to lower your tax bill. But the best part? You can utilize both tax strategies when you file.
Tips for Using Tax Credits and Deductions
Preparing to file your taxes? Here are some tips for using tax credits and deductions:
• Research eligibility requirements online: The IRS website has useful tools to help determine if you qualify for specific tax credits and deductions.
• Gather all your paperwork: Taxes require a lot of forms, documents, and receipts. When claiming credits and deductions, it’s important to have the paperwork (whether printed or digital) to prove your eligibility.
• Consider using tax software or an accountant: Taxes can be overwhelming. If your situation is complex (maybe you are confused by, say, your payroll deductions), you may benefit from tax software (TurboTax, H&R Block, and TaxSlayer are popular brands) or a tax professional.
One last note: If you do wind up with a tax refund, you might put it in your emergency fund or, if you don’t have one yet, start one. Experts say to aim to have three to six months’ worth of living expenses set aside in case of job loss or unexpected major bills.
The Takeaway
Tax credits and tax deductions can both lower your overall tax burden. Tax credits reduce what you owe dollar-for-dollar, while tax deductions reduce the amount of income you owe taxes on. If you’re eligible, you can take advantage of both tax strategies when you file.
While you are getting your taxes organized, don’t overlook the value of a banking partner that makes it easy to manage your finances.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Between a tax deduction and tax credit, which lowers your bill more?
A tax credit lowers your tax bill dollar-for-dollar and may even result in a refund. A tax deduction only reduces the amount of money you owe taxes on. For example, a $1,000 tax credit takes $1,000 off your tax bill. A $1,000 tax deduction reduces your taxable income by $1,000; the actual reduction in tax depends on your tax bracket.
Do more people utilize tax credits or tax deductions?
Most tax filers can claim the standard deduction, but not everyone qualifies for tax credits. So it is more likely that you’ll use a tax deduction on your tax return than a tax credit. That said, it is possible to use both credits and deductions to lower your tax bill.
Can I claim both deductions and tax credits?
Yes, you can claim both tax deductions and tax credits on your tax return, as long as you qualify for the deductions and credits you claim.
Photo credit: iStock/PeopleImages
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
SOBNK-Q424-081
Read moreJan
03
2025
Going Back to School for a Master’s Degree During a Recession: Good or Bad Idea?
Deciding to pursue a master’s degree during a recession can be a strategic move or a financial risk, depending on your circumstances. While economic downturns often reduce job opportunities, they can also provide a chance to invest in education, build new skills, and enhance career prospects.
Historically, times of economic turmoil have seen big upticks in graduate school enrollment. But is this the right move for you now?
This guide explores the pros and cons of pursuing a master’s degree during uncertain economic times to help you make an informed decision.
Key Points
• Economic downturns often lead to higher enrollment in graduate programs as individuals seek to enhance their qualifications amid a competitive job market.
• Obtaining a master’s degree can lead to higher median weekly earnings compared to holding only a bachelor’s degree.
• Graduate degree holders typically experience lower unemployment rates, suggesting that advanced education may provide increased job stability during recessions.
• The rise of online graduate programs offers flexibility and accessibility, allowing individuals to pursue advanced degrees without relocating or leaving employment.
• Prospective students should carefully consider tuition costs and potential student loan debt to determine if pursuing a graduate degree during a recession is worth it.
Why People Go Back To School During Recessions
Periods of decline in economic activity (aka recessions) are commonly accompanied by corporate layoffs, rising unemployment, and dwindling wage growth. Because there are fewer employment opportunities, job hunting and career advancement become more competitive. Many workers decide a return to school, often to earn a master’s degree, makes sense in a tough employment market.
Earning an advanced degree can boost your earning power in your chosen field or provide an opportunity to change fields. Career changers may gravitate to growing, “recession-proof” industries and fields that they are passionate about.
Recommended: 12 High Income Skills to Learn
Who Should Get a Master’s Degree?
Whether you should get a master’s degree depends on your professional and academic goals. A master’s degree indicates a high level of knowledge in a profession or research area. It takes anywhere from one to three years of full-time study to complete a master’s. A bachelor’s degree is required to apply for a master’s program.
For academics, a master’s is usually a stepping stone to a Ph.D. or other doctoral degree. Professional master’s degrees can also be the first step toward advanced degrees required for doctors, pharmacists, and lawyers, and are a necessary part of education for those careers.
Master’s degrees can also be required or particularly helpful in education, social service, health care, business, and STEM fields (science, technology, engineering, and mathematics).
Recommended: What Should I Do After My Master’s Degree?
Pros of Getting a Master’s Degree in a Recession
For many people, a recession is a good time to go back to school, either full- or part-time. Here’s why.
Potential Salary Boost
In many careers, a master’s degree will command a higher salary and increase job security. According to the Bureau of Labor Statistics (BLS), workers with graduate degrees (master’s, professional, and doctoral) have the highest earnings.
The median weekly earnings for full-time workers over 25 with a master’s degree is $1,737, compared to $1,493 for employees with a bachelor’s degree only.
Increased Job Security
Workers with graduate degrees also experience lower levels of unemployment, according to BLS data. The unemployment rate in 2023 for people with a master’s was 2.0%, compared to 2.2% for workers with bachelor’s degrees.
People who have been negatively affected by a recession — either laid off or unemployed for an extended period — often find that an advanced degree can lead to more job security and advancement. As mentioned above, recessions can also be a good time for workers in hard-hit industries to gain skills and knowledge through a master’s in a fast-growing field.
Many grad school students find that networking with other students, faculty, and alumni helps them find new opportunities, especially in a competitive job market.
Easy Access To High Quality Programs
Hundreds of high-quality, in-demand graduate degree programs are now available online from prestigious colleges and universities. Remote learning makes these programs accessible to students anywhere in the country. Online programs often cost less than in-person learning and can offer more flexibility for students who need to continue working full- or part-time.
Recommended: 10 Most Affordable Online Colleges in the United States
Cons of Getting a Master’s Degree in a Recession
Grad school isn’t right for everyone, and making this move demands careful consideration. Potential cons of going to grad school in a recession include:
Costs and Potential Debt
The average cost of a master’s degree is $62,820, according to a 2024 report from the Education Data Initiative. That does not include living expenses or lost wages from taking time off work. And people with a master’s degree carry an average of $69,140 in student loan debt.
Determining whether taking on federal or private student loan debt is worth the increased earning potential or career satisfaction is an important step in your decision-making process.
Increased Competition for Admissions
You’re not the only one debating whether to ride out tough economic times by going back to grad school. That can mean increased competition for the best programs. If a degree from a particular college or university is part of your career plan, carefully consider your timing.
Missed Work Experience
If you’re considering leaving a job to attend grad school, keep in mind that you may miss valuable work experience that can put you in a better position when the recession ends. Working part-time can help pay for grad school and sometimes alleviates missed work experience, but not always. That’s because part-time employees don’t always encounter the same opportunities to gain valuable experience as full-time staffers.
Recommended: Undergraduate vs. Graduate Student Loans: How They Differ
How Much Does a Master’s Degree Cost?
Depending on the field of study and institution, master’s programs range from $18,000 to $47,000 per year. Unlike many doctorate programs that waive tuition and fees and even offer a stipend, master’s degrees are not fully funded.
Ways To Pay for a Master’s Degree
Most students rely on a combination of savings, scholarships, grants, federal loans, private loans, and help from employers to pay for graduate school.
Federal Grants
Federal grant programs include the Pell Grant, which is generally available only to undergrads who demonstrate exceptional financial need. However, it may be possible to receive some grant funding to help you pay for grad school during a recession. Remember, this time around you’re an independent student, and you won’t be tied to your family’s income to determine need.
Another federal grant that may be available to graduate students is the Teacher Education Assistance for College and Higher Education, or TEACH Grant. This grant has relatively stringent requirements and is available for students pursuing a teaching career who are willing to fulfill a service obligation after graduation.
Filling out the Federal Application for Student Aid (FAFSA) is the first step to determining whether you’re eligible for federal grants.
Scholarships
The FAFSA also gives you access to many scholarships. There are scholarships offered in every field imaginable. Start your search with these online tools:
• Graduate School Scholarship Search at Sallie Mae
• Scholarship Search Engine at CollegeScholarship.org
• SoFi’s State Scholarship Search
Federal Student Loans
Grad students may be offered loans as part of their financial aid offer. A loan is money you borrow and must pay back with interest. Loans made by the federal government, called federal student loans, usually have more benefits than loans from banks or other private sources.
The lifetime limit for Direct Subsidized and Unsubsidized student loans is $138,500 for graduate or professional students. Of this amount, no more than $65,500 can be in subsidized loans. This includes student loans borrowed during undergraduate study.
Private Student Loans
Many students also rely on private student loans to help pay for graduate school. The maximum amount that students can borrow with a private student loan varies by lender, but can’t exceed the cost of attendance.
The cost of attendance is the combined total of tuition and fees, books and supplies, living expenses, transportation, and miscellaneous expenses. This estimate may also include dependent care, study-abroad, and costs related to disabilities.
Recommended: A Complete Guide to Private Student Loans
The Takeaway
Pursuing a master’s degree can be a great way to enhance your skills and career opportunities. Taking advantage of a slow or troubled economic time to do so can help ensure your job security in the future. That said, it’s important to consider the tuition costs associated with a graduate degree, the potential for taking on debt, and the effects of missed earnings and opportunities if you take time off work to go back to school.
Ways to pay for graduate school include cash savings, tuition assistance from your employer, scholarships, grants, and federal and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Is grad school a good place to ride out a recession?
It can be. Recessions are usually accompanied by high unemployment and layoffs. For many people, gaining new skills and expertise in a graduate program can be a good way to make yourself recession-proof in the future.
Do more people head for grad school during a recession?
Yes, more people often pursue graduate school during a recession as job opportunities shrink and individuals look to enhance skills or change careers. Higher education can provide a competitive edge, but it’s crucial to weigh the costs, especially when taking on debt during uncertain economic times.
What are worthwhile master’s degrees to get during a recession?
Master’s degrees in fields with strong job stability and growth potential are worthwhile during a recession. Examples include health care, data science, cybersecurity, education, and business administration (MBA). These fields often offer consistent demand, diverse career opportunities, and higher earning potential, making them strategic choices in uncertain economic times.
Photo credit: iStock/izusek
SoFi Private Student Loans
Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOISL-Q424-046
Read moreJan
03
2025
Trade School Costs Need to Knows
A trade school, often called a vocational or technical school, provides specific job skills to start a career quickly in a given trade, with the requisite certifications and licenses. That career can range from being an electrician to a physician’s assistant to a cook. As opposed to a four-year college, a trade school education is generally completed in just two years and focuses on getting students hands-on experience and securing the job they want.
Trade school costs an average of $12,000 to $20,000+ per year. While trade school can be significantly less costly and require less time than a four year degree, there are still expenses to consider. Continue reading for more information on how expensive trade school is and planning for trade school costs.
Key Points
• Trade schools offer focused training in specific job skills, allowing students to enter careers quickly, typically completing programs in less than two years.
• The annual cost of trade school tuition can range from approximately $4,200 to $25,000+, depending on factors like the school and program.
• Additional expenses for trade school often include costs for books, supplies, and living expenses, which can vary greatly based on individual circumstances.
• Financial options for attending trade school include federal aid, grants, scholarships, and part-time work, which can help cover educational costs.
• When selecting a trade school, important considerations include program accreditation, completion time, available on-the-job training opportunities, and employment support services.
What Is Trade School?
College is not for everyone. Trade school can provide a path to a rewarding career, without the time and money required to pursue a four-year degree.
Trade school is a type of education that provides training in a specific job or skill set to allow students to start a given trade or career with the requisite certifications and appropriate licenses. Also known as vocational or technical schools, trade school can be a stepping stone into a career as a plumber, electrician, dental hygienist, pharmacy technician, paralegal, and more.
Trade schools may be private or public institutions, and it can take as little as a few months to two plus years to complete a trade school program. Community colleges may offer vocational programs or more general education classes for students planning to transfer to a four-year institution.
How Much Does Trade School Cost
The cost of trade school varies widely based on factors including the school, the program you are pursuing, and your location. According to the Integrated Postsecondary Education Data System (IPEDs), the average cost of trade school was $15,070 for the 2022-23 school year.
Tuition
The cost of tuition for trade school can range dramatically, from $4,200 to $25,000+ per year. Here is the average cost of tuition and fees for popular trade school programs, according to IPEDs:
• Patient Care Assistant/Aide: $4,280
• Welder: $11,230
• HVAC Tech: $11,630
• Licensed Practical Nurse: $14,700
• Cosmetologist: $16,230
• Auto Tech: $25,870
Books and Supplies
The cost of books and supplies will vary based on the vocational program or trade school. According to data from IPEDs, the average cost of books at a two-year public institution was $1,720 for the 2022-23 school year.
Living Expenses
Unsurprisingly, the cost of living expenses can also vary quite dramatically from student to student. Some students who are attending trade school may be able to live at home with family members. This could help them reduce costs because they may have little to no rent, and share meals with family members.
Trade school students who are living on their own may need to budget for more expensive living costs.
Recommended: What Is the Cost of Attendance in College?
Paying for Trade School
When it comes to paying for college, or trade school, there are a few options available to students, including loans, federal aid, grants, and more.
Trade School Loans
The term “trade school loan” is just a way to refer to a student loan, personal loan, or outside funding measure used to pay one’s way through a training or vocational school.
Many trade and vocational schools may qualify for federal student loans and other forms of federal financial aid. To apply for federal loans, students will need to fill out the Free Application for Federal Student Aid (FAFSA®) each year.
There are limits for federal student loans, and some students may consider a private student loan to supplement the cost of tuition and living expenses. Private student loans are available from private institutions, but they may not offer the same benefits or protections as federal student loans.
Working Part-Time
Trade schools generally offer flexible programming — for example, night classes — so students may be able to work part-time to fund their education. Students may consider getting a part-time job in the field they are studying, or working at a gig that is willing to accommodate their school schedule so they have enough time to take classes and study.
Financial Aid for Trade School
As already mentioned, trade schools may qualify for federal financial aid — including student loans, grants, and scholarships. Federal aid can be used for technical schools and some certificate programs as long as the schools are accredited and eligible for federal funds. You can check the Department of Education’s database of qualifying schools to confirm your chosen trade school program qualifies.
Grants
Students at eligible trade schools may qualify for a Pell Grant. A Pell Grant is a type of federal grant that is awarded to students who demonstrate exceptional financial need. The maximum amount for the 2024-25 school year is $7,395.
Scholarships
There may also be scholarships available for trade school students. Certain trade schools may offer scholarships, and there are vocational school scholarships available from private organizations, as well. To find trade school scholarships, check with your school’s financial aid office or search online scholarship databases.
Recommended: SoFi’s Scholarship Search Tool
Tips on Selecting a Worthwhile Program
Trade school can make sense for students who are interested in pursuing a specific vocation and are not interested in attending a more traditional four-year school. To evaluate trade schools, consider the following factors:
• Program accreditation: This can give you an idea of a program’s reputation. Accredited schools may qualify for federal financial aid, as well.
• Time to complete: This will tell you how long it will take you to complete the program, along with the total cost of the program.
• Opportunities for paid, on-the-job training: Some programs may offer a combination of in-classroom learning and paid job training. Gaining this real world experience can be valuable.
• Employment assistance or support: Some trade schools have close connections with local businesses or industries. Find out if there is a career connections office or any job placement assistance from your school.
Private Student Loans for Trade School
SoFi doesn’t offer student loans for trade school programs, but does offer private student loans for eligible graduate certificate programs. If you’re a college student interested in pursuing a certificate program, a SoFi private loan could be a tool to help you finance the program.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Are trade schools more affordable than four-year universities?
Trade schools are generally more affordable than a college or university. In addition to having a more affordable annual tuition, typically trade school programs can be completed in less than four years.
What are the most high-paying trade jobs?
Some of the highest-paying trade jobs include elevator and escalator installers, radiation therapists, dental hygienists, aircraft mechanics, and construction managers. These roles typically require specialized training or certification from trade schools and offer competitive salaries, job stability, and opportunities for career growth in high-demand industries.
How long is trade school?
The length of trade school can vary based on the program. Some trade school programs can be completed in a few months while others may take two years to complete.
SoFi Private Student Loans
Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOISL-Q424-043
Read moreJan
03
2025
Applying for a $20,000 Personal Loan in 2025
You’ll likely need a credit score in the Good range (670 to 739) or higher to qualify for a $20,000 personal loan with a competitive interest rate. If your credit rating is Poor or even on the lower end of Fair, you may have difficulty getting approved for a personal loan of that size.
Personal loans offer relatively low interest rates compared with other options, such as high-interest credit cards. Ultimately, the interest rate will depend on the size of your loan, the term, and your credit score.
Here’s a closer look at what it takes to apply for a personal loan.
Key Points
• A minimum credit score of 670 to 739 is typically required for a $20,000 personal loan.
• Proof of steady income, including pay stubs, tax returns, and bank statements, is essential.
• Applicants must be at least 18 years old and legal U.S. citizens.
• A debt-to-income ratio below 36% enhances loan approval chances.
• Hard credit inquiries can temporarily lower a credit score by a few points.
Why Choose a $20,000 Personal Loan
Let’s start with the basics: A personal loan is money you borrow from a bank, credit union, or online lender, which you then pay back in regular installments with interest over a set number of years. You can use the funds for nearly any purpose, but many borrowers choose to put the money toward consolidating debt, paying for home repairs, or covering an unexpected expense.
A personal loan for $20,000 has some advantages over other financing options, such as high-interest credit cards.
• Flexible terms. With a $20,000 personal loan, you may be able to select the repayment terms that best fit your budget and financial goals. You’ll also likely have a fixed interest rate. This means you’ll pay the same amount each month over the life of the loan, which can be easier to budget for.
• Competitive interest rates. A strong credit profile and steady income can help you qualify for the lowest rate available. Shop around to ensure you get the best deal.
• Fast, easy application process. Compared to some other financing options, applying for a personal loan is a relatively simple process. To avoid hiccups, make sure you understand your options, meet the lender’s requirements, and gather the necessary paperwork ahead of time.
Recommended: What Are Personal Loans Used For?
Factors to Consider Before Applying for a $20,000 Personal Loan
Twenty thousand dollars is a sizable chunk of money — and you can do a lot with it. But applying for a loan of that size is a major decision, and there are questions to consider ahead of time.
How Is My Financial Situation?
To help boost your chances of getting approved for a loan, it’s a good idea to take stock of your finances. Determine how much you’ll need to borrow. Check your credit report and fix any inaccuracies you see. And calculate your debt-to-income (DTI) ratio — a good rule of thumb is to maintain a ratio of 36% or less.
Can I Afford the Monthly Payments?
Remember, when you take out a loan, you’re taking on more debt. Crunch the numbers and see if paying it off will put a strain on your finances. Using a personal loan calculator can give you an idea of how much you’d need to come up with each month.
How Will Applying for a $20,000 Loan Impact My Credit Score?
When you apply for a loan, the lender will likely do a hard pull of your credit. This can cause your credit score to drop temporarily by a few points.
How to Apply for a $20,000 Personal Loan
To secure your money, you’ll need to get approved for a personal loan. Once you know how much you want to borrow, you may consider getting prequalified for a loan. Lenders will ask you to provide basic information, including your address, income, and Social Security number. They may then perform a soft credit check that won’t hurt your credit score.
Finally, they’ll offer you a prequalified quote, including how much money you qualify to borrow, your monthly payment, and your interest rate. You can use this process to shop around with a few lenders to secure the best quote.
Once you’ve decided which lender to go with, you’ll submit an application. You’ll need to provide proof of income, address, and employment, and you’ll need to submit to a hard credit check.
It typically takes anywhere from one day to one week to get approved for a personal loan. Once you are approved, review the offer and the loan’s terms and conditions. If everything looks good, then sign the loan agreement and the lender will disburse the funds.
If the terms aren’t right for you, you have the option to apply with a different lender. But note that every time you apply for a loan, the lender will perform a hard inquiry, which can temporarily cause your credit score to drop by a few points.
Recommended: 11 Types of Personal Loans
Eligibility Requirements for a $20,000 Personal Loan
When applying for a $20,000 loan, there are certain criteria you’ll need to meet in order to be approved. These vary by lender but typically include:
• A minimum credit score. A FICO® Score in the Good range (670 to 739) or higher will help you qualify for loans with better interest rates from a wider variety of lenders. If you have Poor credit (a FICO Score of 300 to 579), or even in the low end of the Fair range (580 to 669), you may have difficulty getting approved for a personal loan.
• Proof of a steady source of income. Examples may include pay stubs, tax return documents, and bank statements.
• Age and citizenship requirements. In general, you’ll need to be at least 18 years of age and a legal U.S. citizen.
• DTI ratio. As we mentioned, lenders usually prefer a DTI ratio below 36%.
Understanding the Loan Repayment Process
Repaying a loan means paying back the principal amount (the original sum of money you borrowed) plus interest. Payments are usually paid in monthly installments over the agreed-upon length of your loan.
Staying on top of those payments is crucial. Not only do timely payments help you establish or build a positive credit history, they also mean you can avoid costly late fee penalties. Want to pay extra every now and then? Talk to your lender or check your loan agreement first to find out if you can make additional payments without being slapped with a prepayment penalty.
Because on-time payments are good for your credit — and your credit score — it’s important to speak up if you’re having trouble making payments. Consult your lender and ask if they’d be willing to work with you on adjusting your loan terms or setting up a new payment plan.
The Takeaway
To get the best terms and interest rate for a loan for $20,000, you’ll likely need a Good credit score (670 to 739). But no matter your score, shop around and consider using prequalification to find the loan that’s best for you.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
How long does the personal loan application process take?
Once you have all the necessary paperwork in order, you may be able to complete a personal loan application in just a few minutes. However, it can take anywhere from one to seven days to be approved and receive your funds.
What is the typical repayment period for a $20,000 loan?
Personal loan terms are generally anywhere from two to seven years. However, this can vary by lender. Typically, shorter terms will carry higher monthly payments and lower interest rates, while longer terms will have smaller monthly payments and higher interest rates.
Can I use the loan for any purpose?
One advantage of a personal loan is that you can use the funds for nearly any purpose. In many cases, borrowers take out a loan to consolidate high-interest debt or pay for expensive bills or home renovations.
Photo credit: iStock/AsiaVision
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOPL-Q424-051
Read moreSee what SoFi can do for you and your finances.
Select a product below and get your rate in just minutes.